Apple CEO Tim Cook Has Had Enough Talk About Carrier Subsidies

Tim Cook, faced with a question about carrier subsidies during the Apple earnings call, offered a reminder of all that the iPhone offers carriers. Apple, he concluded, is working on making the best product, which carriers "will be very motivated" to sell customers.

Apple CEO Tim Cook, during Apple's fiscal third-quarter 2012 earnings call
Tuesday night, offered the nation's wireless carriers, if not the industry, a
reminder of the full extent of the iPhone's value.
The iPhone, it's well-known, is a pricey smartphone for carriers to offer.
Apple charges more for it than its competitors do for their devices, leaving
the carrierswhich like to offer subscribers tidy $199 price pointsto pay out
larger subsidies. The incredible popularity of the iPhone, however, makes it a
no-brainer for the carriers: They grin and bear the subsidy and look forward to
two years' worth of data plan payments. However, even the latter hasn't stopped
them, more recently, from embracing strategies that will help them to lessen
their reliance on the iPhone.

When asked during the earnings call about the types of conversations Apple
is having with the carriers regarding pricing and subsidies, "given that
there's been a lot of talk about that over the last few months," said the
analyst asking the question, Cook
responded:

"I don't want to get into specific topics about the different carriers,
but generally I would just say that our role is to make the very best
smartphone in the world and that has an incredible user experience far superior
than anything else that customers want to use every day. And I think at the end
of the day, the carriers want to buy or want to provide their customers with
what those customers want to buy. And so the most important thing for Apple, by
far, is to continue making the best products in the world, and we are very
deeply committed to doing thiswe're maniacally focused on it.
"From the carrier's perspective, I think it's also important to
remember that the total subsidy they pay is fairly small relative to the
monthly payments they collect over a 24-month contract period. And I think many
would tell youthey certainly told methat the iPhone has several advantages
for them over the other smartphones. The churn rates are much less, and you can
see carriers are now focusing on shared data plans, and I think an iPhone
customer is more likely to have a tablet or an iPad. So I think they really
value [iPhone customers] quite a bit."

If that weren't enough, Cook pointed to the data efficiency the iPhone can
offer in these spectrum-pinched times, adding: "Our engineering teams are
very sensitive to working with the carriers to find the most efficient way to
deal with data, and we think we offer the most efficient smartphone on the
market [for] an app-rich ecosystem."

Technology Business Research analyst Eric Costa, in a July 24 research note
following AT&T's second-quarter earnings announcement earlier that day, wrote
that AT&T is now packing "a one-two punch" that consists of a
diversified device lineup and more flexible data plans.
Costa called the 72.5 percent of smartphones comprising AT&T's
smartphone activations during the quarter a "significant improvement"
over the first quarter, when the iPhone made up 78 percent of the carrier's
smartphone activations.
"Despite the lower percentage," Costa added, "AT&T still
remains reliant on the iPhone to drive subscriber additions and remains the
leading U.S. iPhone carrier."
TBR analyst Michael Soper, in a report earlier this month, pointed to heavy
subsidies as a primary reason that Microsoft can expect support for its Windows
Phone 8 operating system. The carriers, looking for leverage over Apple and
Android OEMs, are looking for a third OS to get behind, Soper explained.
Soper
told eWEEK that while Android phones are generally less expensive
than iPhones, the operators are now feeling the impact of subsidies related to
high-end smartphones from OEMs such as Samsung and HTC.
Costa, like Apple's Cook, has
pointed out that the iPhone, while it comes with some upfront pain to the
carriers, certainly also enables them to more than overcome it. Because of
this, if the iPhone's competitors are to match it in subsidies, they'll need to
also meet its ability to drive data revenues and improve customer retention.
Cook concluded his comment Tuesday night by adding, "We will continue
to focus on making the best product, and I think the carriers will be very
motivated to make sure that they provide that to customers."
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Michelle Maisto has been covering the enterprise mobility space for a decade, beginning with Knowledge Management, Field Force Automation and eCRM, and most recently as the editor-in-chief of Mobile Enterprise magazine. She earned an MFA in nonfiction writing from Columbia University, and in her spare time obsesses about food. Her first book, The Gastronomy of Marriage, if forthcoming from Random House in September 2009.